This story is part of Prospect’s Rollups series, highlighting under-the-radar markets that have been rolled up by under-the-radar monopolies. If you know of such a rollup, please let us know at rollups(at)prospect.org.
The FTC wants to stop all the stores in a mid- to high-end mall in Southern California from being run by the same owner — and more specifically, it wants to stop the workers at those stores from having to endure low wages and poor conditions.
These are some of the key interests in the merger challenge to Tapestry’s proposed $8.5 billion acquisition of Capri Holdings. Few people are familiar with the two parent companies, but they are familiar with the associated brands: Capri has Versace, Jimmy Choo and Michael Kors, while Tapestry has Kate Spade, Coach and Stuart Weitzman. If the deal goes through, all would be under the same corporate ownership.
It would be the start of a dream come true for Tapestry’s owners, who have spent the past decade consolidating that particular sector of the fashion industry.The prospect of a new monopoly in the U.S. was enough for all five FTC commissioners, including two Republicans who were sworn in just last month, to vote to block the merger.
The fact that this bipartisan law enforcement body has put forward worker harm as a reason to block new monopolies shows how far we have moved from the consumer welfare standards that dominated merger decisions for the past few decades. Last week, I attended a conference on antitrust issues at the University of Chicago, and the consumer welfare standard was not mentioned at all in the talk about the impact of economic concentration on productivity, innovation, and democratic freedoms. The FTC wants to prevent high prices and reduced choice in this market, but that is not its only concern. This shift in attention constitutes a quiet revolution in competition policy.
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You might think there are plenty of high fashion options, but look under the hood and you’ll see that consolidation is happening fast. Just before Joe Biden took office, Tiffany was acquired by LVMH, the French conglomerate that had already consolidated Louis Vuitton, Fendi, Christian Dior, Givenchy, Marc Jacobs, Stella McCartney, Loewe, Sephora, TAG Heuer, Bulgari, and several wine and spirits companies (the MH in LVMH stands for Moët & Hennessy). A second French conglomerate, Kering, owns Gucci, Balenciaga, Bottega Veneta, Yves Saint Laurent, Creed, and Alexander McQueen. These two giants control most of the high fashion “European luxury” market.
Tapestry targets the “affordable” or “reachable” luxury segment — a term that sounds silly, but was invented by Coach to describe a distinct market segment, and which Tapestry mentions in earnings calls and financial disclosures. Kate Spade, Coach and Michael Kors handbags are well-made but not as expensive as most of LVMH’s or Kering’s products, allowing millions of middle-class customers to buy high-quality handbags at a reasonable price. And unlike European luxury brands, which always sell at full price, they are often discounted around big shopping events like Black Friday.
While the FTC removed any mention in its public complaint of the share of affordable luxury handbags that Tapestry would have after the acquisition, The Wall Street Journal cited a 2022 report estimating that Coach and Michael Kors alone hold a 53% market share in that category. Competitors such as Rebecca Minkoff are quoted in the complaint as acknowledging the difficulty of competing in such a limited market.
According to the lawsuit, Tapestry and Capri’s brands, Coach, Kate Spade and Michael Kors, “constantly monitor each other’s ‘affordable luxury’ handbag brands with laser-like focus, from look and feel to price and performance, and use that information to inform their strategic considerations and actions.” This affects not just price and promotions, but also innovation, design and store count. Consumers benefit, because when prices fall, promotions are announced or one brand’s design advances, the other brands act accordingly. If all the brands were under the same owner, the competition would be eliminated. There would be no price wars.
President Biden’s antitrust authorities have become quite adept at using the work injury theory.
If the two companies were to combine, customers would pay more for fewer items. According to the FTC, Tapestry has increased its profitability over the past decade by restricting wholesale sales at stores like TJ Maxx and Ross, where discounts are the norm, while Michael Kors has increased its wholesale sales and undercut its rivals on price. The deal documents say Michael Kors’ discount strategy would be reversed, driving up prices for affordable luxury handbags.
What’s interesting is that the complaints don’t end there, as they might have done in competition policy over the past 40 years. The combined company would have 33,000 employees worldwide, and going back to what I’m assuming is a moderately upscale Southern California shopping mall, they typically work across the street. The complaints paint a scenario in 2021 where Michael Kors matches the Tapestry Brands store’s $15 hourly minimum wage within months. In a merger, neither side is required to match the other’s wages or working conditions. And employees would not have the bargaining power to accept a better offer on the other side of the mall.
President Biden’s antitrust officials have become increasingly adept at using these labor harm theories. The Justice Department’s antitrust division won a case blocking the Penguin Random House-Simon & Schuster merger over cuts to labor-compensation advances for authors, and more recently, the Federal Trade Commission’s challenge to the Kroger-Albertsons grocery store merger highlighted the potential difficulty workers will have in winning concessions in collective bargaining.
The charges against Tapestry could be yet another hurdle. The FTC cites internal documents that show executives viewed the Capri acquisition as the start of a series of much larger deals consistent with the company’s string of acquisitions over the past decade. The FTC argues that while Tapestry is much smaller than LVMH, it clearly sees it as a model. The complaint suggests that the strategy could violate Section 7 of the Clayton Act, which bans acquisitions whose result could “substantially lessen competition or tend to create a monopoly.”
Attacking roll-up strategies is also a new trend for antitrust enforcement: The FTC is suing private equity firm Welsh Carson over its successive acquisitions of anesthesia practices in Texas.
Not surprisingly, Tapestry is against all this. The company’s CEO, Joan Crevoiserat, was on the road on Monday when the challenge was announced, arguing that there is fierce competition in the market and that Tapestry’s advantage comes from superior quality, not high price marks.
What’s different here compared to the past is that the FTC is looking at a range of harms, not just whether customers will pay a higher price for a handbag. In this new view of antitrust, the public is made up of workers, entrepreneurs, and partners, not just consumers. We care about quality and experience, not just cost. All stakeholders are now being considered in a way we haven’t seen under previous administrations.
More than anything, that’s the difference between antitrust enforcement today and antitrust enforcement in the past. And if it works, maybe one day you’ll be able to afford a Kate Spade bag, or a better new designer bag, and the person who sells it to you will be able to pay their rent.
